Yearly Renewable Term Life Insurance

Eric Van Haaften Term Life Insurance

Many people are curious and want to know more about yearly renewable-term life insurance.

This article will break down everything you need to know about annually renewable term insurance coverage.

We’ll cover how it works, the benefits and drawbacks, and who should consider buying yearly renewable-term coverage.

By the end of this informative report, you will be able to decide whether renewable-term insurance is the right choice for your family.

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What is annually renewable term life insurance?
What are the advantages of yearly renewable term life?
What are the disadvantages of annually renewable term?
How and when to buy ART insurance coverage?
How do YRT rates compare with level-term life insurance?

How Does Annual Renewable Term Work?

Life insurance aims to provide financial protection for your loved ones in the event of your death.

Term life insurance provides affordable premiums for protection needs lasting between 10 and 40 years.

But what if you only need to be covered for a year or two? If that’s the case, you should consider annual renewable term life insurance (ART).

This type of life insurance is also often called renewable-term life insurance
or yearly renewable term (YRT).

Annual renewable-term life insurance fills a niche and provides renewable coverage suitable for short-term needs.

Annual renewable insurance works the same as a standard life insurance policy, but the term is much shorter.

Unlike most term insurance plans, annually renewable term policies provide a level death benefit for a premium that will increase yearly.

The increase is due to age and the mortality tables insurance companies use to determine your rates.

You will still need to apply and get approved for the coverage. But, once approved, your policy will renew every year as long as you keep the policy paid up and in good standing.

Benefits of Yearly Renewable Term Life

Looking for life insurance but not wanting to commit to a long-term policy?

Annual renewable term (ART) life insurance might be the right fit for you. Here are a few essential benefits of renewable term life insurance.

ART has a Fixed-Rate Schedule

It’s a fixed-term policy, which means you know how much your premium will increase and how long coverage will last.

This predictability of renewable term insurance can be helpful for budgeting and planning purposes.

It’s automatically renewable, meaning you can continue your policy each year without a medical exam.

YRT is Affordable for Short Periods

YRT is affordable, making it an excellent option for those who want life insurance but don’t want to spend a lot of money on it.

According to Nerd Wallet, it provides temporary peace of mind, knowing that you and your loved ones are protected in the event of your death.

Renewable Term Insurance is Flexible

It is a good option for people who want the flexibility to renew their life insurance one year at a time.

You can cancel the policy without penalty, which gives the policyholder the flexibility to discontinue coverage if they no longer need it or find a better deal.

ART for Former Smokers

ART is also an excellent policy to purchase if you have recently quit smoking.

Life companies typically charge a higher tobacco rate for one or two years after quitting.

Purchasing and ART can keep your coverage up and your costs down until you qualify for a standard term policy without the tobacco rating.

One Year Term for Medical Conditions

In some scenarios, you might use an ART policy as a bridge until a longer-term policy makes sense.

Things like a temporary health issue or even improving health with weight loss or quitting smoking are great for ARTs.

They generally provide the least expensive coverage options available while you work to qualify for a more traditional long-term policy.

Renewable Term when Changing Jobs

Other critical times to consider a YRT policy would be if you are between jobs or have just started a new job and are waiting for coverage eligibility with your new employer.

According to Investopedia, one-year term life insurance can help you span gaps in benefits between jobs.

Disadvantages of Annual Renewable Term

While it can be an excellent short-term option, there are a few things to consider before deciding if an annual renewable term is proper for you.

Renewable Term May End Prematurely

One of the risks of annual renewable term life insurance is that the policy may not be renewable after a certain period.

This could leave the policyholder uninsured if they are unaware of the coverage termination date.

This matter gets even more complicated if the insured discovers or already has an existing health issue that prevents them from obtaining new coverage.

YRT is Expensive for Long Periods

Annual renewable term life insurance is a type of life insurance that provides coverage for one year.

At the end of the year, the policyholder must renew the policy or lapse. Upon renewal, rates increase according to age.

While this type of life insurance policy is often less expensive than long-term policies, the savings often disappear after the first few years due to annual rate increases.

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Buying Yearly Renewable Term

Yearly renewable term policies can be a great financial planning tool that fills a specific niche.

You may want to take it out while you know you qualify because your age and health will affect premiums and your eligibility for a policy.

Annually renewable term is similar to other life insurance in that premiums are lower if you are healthy and higher if you are not.

So, being as healthy as possible when you apply for your policy can save you money on your premiums.

Policy premiums increase annually according to age, so the longer you wait, the more it may cost.

You can also save money by buying the proper amount of coverage to protect your family’s needs.

You will want to understand what the riders provide before adding or removing them to reduce policy costs.

renewable term life insurance riders

Accelerated Death Benefit: This is typically a free living benefit rider that allows you to access some of your death benefits if you become terminally ill.
Accidental Death Benefit: ADB riders can be added for an additional cost and pays a benefit to your heirs if you die in an accident.
Child Riders: These cheap riders pay a small death benefit, usually up to $25,0000, if one of your children passes away.
Waiver of Premium: This optional rider waives your payments if you become permanently disabled.

Annually Renewable Term Alternatives

ARTs are great at providing short-term renewable coverage and make the most sense as a short-term solution.

But, since their premiums increase yearly at renewal, the solution can quickly get more expensive than a traditional term policy.

So while a YRT will be cheaper initially, its premiums will quickly leap ahead of those paid to a traditional policy.

Comparing different term life insurance plans can help you compare costs and find the most suitable policy for your needs and budget.

You may find a level-term policy better meets your coverage needs because they lock their premiums for many years and are often cheaper after 4-5 years.

Since most companies do not offer 5-year term life insurance looking into a longer-term length is the best choice for extended coverage.

What does annual renewable life insurance cost?

There are a few different types of policies to choose from regarding life insurance.

One of the most popular is the ten-year term life which can generally be converted into a permanent policy each year as long as your policy is active.

So, how much does yearly renewable life insurance cost?

Let’s look at the difference in cost between ART insurance and a standard level-term insurance policy.

The premium comparison below illustrates a $500,000 term life insurance policy and the difference in cost between a yearly renewable term and a 10-year term life policy.

As you can see, ART insurance costs start to get much more expensive after the 5th year, with the total premiums being $1,386 more over ten years.

$500,000 Annual Renewable Term vs. Level Term

Year	ART	10-year
1	$375	$791
2	$490	$791
3	$596	$791
4	$690	$791
5	$770	$791
6	$890	$791
7	$1,055	$791
8	$1,255	$791
9	$1,460	$791
10	$1,715	$791
Total	$9,296	$7,910

* The $500,000 term life comparison shows the difference in cost between ART and a 10-year term for a 55-year-old male

As you can imagine, a policy with an annually increasing premium does not make sense for every family’s planning needs.

Many younger buyers prefer a 30-year term life policy because they wish to protect their spouse, a child, income, or cover a mortgage.

While a 20-year term plan may be the perfect policy for a middle-aged person looking to protect their income until they retire.

With a life insurance laddering strategy, you could save money by having two different term insurance policies staggered in length to match specific protection needs.

If you only have a short-term need for coverage, a simple 10-year life insurance policy is always the least expensive option for most older folks.

However, as people reach their golden years, they begin to get serious about buying a permanent insurance policy for their families.

Do you want your policy to last your entire lifetime?

We usually suggest universal or whole life insurance for people who need lifetime coverage.

We appreciate your time on our website, and if you have any additional questions, we are always thrilled to help!

In the meantime, we have also supplied you with a few commonly asked questions many individuals have when buying life insurance coverage.